Africa is Pick n Pay’s sec­ond en­gine of growth

CityPress - - Busi­ness - JUSTIN BROWN busi­ness@city­

Pick n Pay planned to open its first stores in Nige­ria and Ghana within the next two years, the com­pany said this week.

Last year, Pick n Pay said it would open its first store in Ghana as early as this year. How­ever CEO Richard Brasher said the com­pany’s en­try into Ghana was be­ing held up by prop­erty de­vel­op­ers who had failed to pro­ceed with their plans be­cause Ghana’s eco­nomic growth had slowed.

From 2014 to last year, the econ­omy in the coun­try only grew be­tween 3.6% and 4%. How­ever, things are look­ing up as the In­ter­na­tional Mon­e­tary Fund fore­casts that Ghana will ex­pand by 7.4% this year and by 8.4% next year.

In Nige­ria, Pick n Pay has agreed to part­ner with Nige­ria Stock Ex­change-listed AG Leven­tis. Pick n Pay will hold 51% of the op­er­a­tion.

Pick n Pay said its Zam­bian op­er­a­tion was af­fected by the slow­down in growth in the coun­try.

In the year to the end of Fe­bru­ary, the com­pany opened 12 new su­per­mar­kets out­side South Africa, in­clud­ing three in Namibia, six in Zam­bia, one in Zim­babwe and two in Botswana.

Brasher said the rest of Africa was Pick n Pay’s “sec­ond en­gine of growth”. How­ever, he cau­tioned that the ex­pan­sion on the con­ti­nent would be “mea­sured”. “Africa is our long-term fu­ture, not our short-term fu­ture,” he said.

Alec Abra­ham, an eq­uity an­a­lyst at Sas­fin Se­cu­ri­ties, said Pick n Pay’s strat­egy for Africa made sense as the com­pany would be mea­sured in its ap­proach to ex­pand­ing into the con­ti­nent. Many South African re­tail­ers had learnt that grow­ing in Africa could be “treach­er­ous”.

Sho­prite could af­ford to be a lot more ag­gres­sive in Africa be­cause the com­pany had been present on the con­ti­nent for 30 years, and had paid its “school fees” and learnt valu­able “on-the-ground” lessons, he added.

In the year end­ing Fe­bru­ary, Pick n Pay’s Africa (ex­clud­ing South Africa) op­er­a­tions gen­er­ated R4.3 bil­lion in rev­enue for the com­pany and R226 mil­lion in profit. The re­tailer has 140 of its more than 1 500 stores out­side South Africa.

Gareth Ack­er­man, the chair of Pick n Pay, said cus­tomers were strug­gling be­cause of high in­fla­tion, ris­ing un­em­ploy­ment and low in­come growth.

“Po­lit­i­cal dis­rup­tion has made the sit­u­a­tion more dif­fi­cult, cre­at­ing fur­ther un­cer­tainty at a time when our econ­omy is un­der con­sid­er­able strain and un­em­ploy­ment re­mains stub­bornly high. We are con­cerned about the ef­fect that the re­cent down­grades may have on in­fla­tion,” he said.

Brasher said Pres­i­dent Ja­cob Zuma’s Cabi­net reshuf­fle and the fact that lo­cal in­comes lagged be­hind in­fla­tion led to an in­creas­ingly stressed con­sumer.

“Eco­nomic growth is un­likely to ac­cel­er­ate for some time,” he added, and con­sumers were in­creas­ingly shop­ping around for lower prices.

A key area where Pick n Pay is look­ing to gain ad­van­tage is with pri­vate-la­bel prod­ucts that are owned by the re­tailer, which has the goods made by a con­tract man­u­fac­turer un­der its own la­bel.

Brasher, who joined the com­pany four years ago with the aim of turn­ing it around, said more than 1 700 new and repack­aged pri­vate-la­bel prod­ucts had been launched over the past two years.

The con­tri­bu­tion of the pri­vate-la­bel prod­ucts to Pick n Pay’s turnover has in­creased by 3% since the group’s 2015 year to 18% of turnover in the year ended Fe­bru­ary.

Turn­ing to the com­pany’s on­line pres­ence, Brasher said that Pick n Pay gen­er­ated about R300 mil­lion a year in rev­enue from on­line sales.

At its West­ern Cape ware­house, sales grew by 30% in the year to Fe­bru­ary. A sec­ond ded­i­cated on­line ware­house was op­er­a­tional in Gaut­eng.

Brasher said a new mo­bile de­vice-en­abled on­line shop­ping por­tal would be launched this year.

He cited the UK as an ex­am­ple of on­line sales growth – 10% of re­tail busi­ness was com­pleted on­line in that coun­try, he said.

This week, Pick n Pay re­leased its lat­est set of re­sults, which saw the com­pany’s shares tum­ble. Sas­fin’s Abra­ham said the drop in the share price was due to the com­pany miss­ing its fore­casts, es­pe­cially when it came to its rev­enue fig­ures, as well as in­di­ca­tions that the re­tailer had lost vol­ume.

This loss of vol­ume could sug­gest that Pick n Pay may have lost mar­ket share to its ri­vals, es­pe­cially Sho­prite’s Check­ers chain, he added.

Re­cently, Sho­prite has been a lot more ag­gres­sive in ex­pand­ing the Check­ers chain in up-mar­ket ar­eas, Pick n Pay’s his­toric strong­hold.

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